Accounting Includes “Explaining”

My specialist field is accounting. In essence, an economy is the social relationships built through activities dealing in what is needed in people’s lives. I believe that accounting is a tool and set of rules for communicating those economic activities in a clear way. My specialist subject is corporate accounting, which is composed of financial accounting and management accounting, and for the most part I deal with financial accounting. Financial accounting is a way of providing information about a company’s financial status and business results to stakeholders outside the company. This is carried out through financial statements, in particular profit and loss statements and balance sheets. One of the basic themes of study in corporate accounting is the pursuit of a correct model for financial statements in response to changes in the economic environment. Financial statements are essential for the smooth functioning of economic activities in a market economy, and for this reason it is preferable for financial statements to be drafted in a globally standard format that allows anyone reading them to understand the economic activities of the company in question. When used as a verb “accounting” becomes “to account for”, meaning to explain or understand. In other words, accounting includes explaining to (accounting for) and seeking the understanding of other parties. These parties are the stakeholders, including investors.

The Role of Preventing “Information Asymmetry”

Corporate accounting, as represented by financial statements, is not a fixed thing; rather, there is a need for it to be expressed appropriately in accordance with the changes in economic activities brought about by the environment of the times. For example, “profit and loss calculations” used to be prioritized when examining economic activities, but more recently cash flow has come to be seen as more important. When products are sold this creates sales on profit and loss statements and “profits” rise, but unless cash actually comes in the cash inflow is zero. It would be difficult to argue that a state of “creating profits but no cash” is a true representation of economic activity. The role of accounting could be described as that of an accurate “translator” for current economic activities. If this translation function is inaccurate, the result is a society in which the recipients of this information suffer losses.
“Information asymmetry” in economic activities also shows us how important accounting is. In normal circumstances, there is a gap between the information held by the buyer and the information held by the seller. Information asymmetry arises when the parties to a transaction or an exchange do not possess equal information and the party with less information is at a relative disadvantage. If there is information asymmetry when investors invest in companies it becomes more difficult to maintain healthy and trouble-free economic activities. Accounting plays a role in supporting rational decision-making by removing information gaps and preventing information asymmetry from arising.

Double-entry Bookkeeping as a Way of Taking into Account Dual Natures

The English word “accountability” has already entered the Japanese lexicon. Previously, the word was used to mean the responsibility of a company, as the party responsible for the accounts, to give explanations to stakeholders such as investors. This accounting concept spread to other fields, so that the word “accountability” came to be used to mean the responsibility of government and the authorities to explain policies to citizens, and the responsibility of parties to environmental or social problems to explain themselves when incidents arose. In other words, the thinking and rules behind accounting can now be applied to a variety of different frameworks in society.
It is double-entry bookkeeping, a technical system used to support the drafting of financial statements, that demonstrates most clearly the thinking behind accounting. Double-entry bookkeeping is a way of recording both the causes and the results of transactions in a way that takes into account their dual nature. Put more simply, buying a product has the dual result of bringing about an increase in goods and a decrease in cash. The idea of taking into account this dual nature can be seen as a useful approach not only in commercial transactions but also in many other social settings, including human relationships. For example, the concept of “double-entry bookkeeping” can be seen as an extremely effective way of thinking about sustainable societies in which both economic development and environmental conservation can be achieved. My own research theme is to examine how useful these accounting concepts can be in the agricultural field of agro-economics. Accounting is normally treated as a field of commercial science and economics, but I believe we will be able to identify the true value of accounting through the social significance of education and research carried out at the School of Agriculture.

Compatibility of CSR Activities and Accounting

As explained above, accounting has grown from being nothing more than a way of “executing economic responsibilities” into a larger role of “executing social responsibilities”. I have used this idea in CSR activities carried out alongside my students. CSR implies social responsibility for companies, but universities also need to fulfill their social responsibilities. One example of our activities is the regional partnership activities we have promoted in Kawasaki City, Kanagawa since 2009. We used the idea that shopping districts possess multiple functions as “a place for the local community to gather” in addition to their basic function as “a place for shopping” to develop a proposal for joint regional activities by representatives of the shopping districts and university students. A variety of activities are ongoing, including participation in the planning and operation of events hosted by the shopping districts. One new project is the Permanent Settlement Promotion Project we are currently promoting in Nishimeya Village, Aomori. The initiative aims to attract people to settle permanently to revitalize the village, which is suffering from depopulation. In order for this to succeed there is a need to change the current culture of not accepting outsiders. University students have been encouraged to participate in village festivals and other events in the hope of affecting a chemical change through visits by university students.
I believe that CSR activities are similar to the “three-way benefit” philosophy of the Omi Merchants. In other words, they are good for the seller, good for the buyer and good for society. It goes without saying that ongoing regional partnership activities require funding, and this funding is provided by our funding partners. As the beneficiaries of this funding, our challenge is to use funding as effectively as possible to bring about results in the form of a “three-way benefit” that all parties understand and are happy with. I believe that this process requires the approach of accounting.

A Framework for Building a Better Society

In the past, when problems have arisen at companies or in society people have often dealt with them from start to finish in a haphazard way. If this approach continues for too long, a company’s financial statements become distorted and society becomes unable to create a bright future for itself. I believe there is a need to consider ways of making a better society, to set out a direction towards a brighter future and then to act. To achieve this, a conceptual framework is needed and my personal proposal to society is the application of an accounting approach to the construction of that framework. One part of my proposal is the promotion of “universal bookkeeping” through which all citizens master the accounting tool of bookkeeping. It has been confirmed that elementary school textbooks of the Meiji era included a textbook on bookkeeping, and for a time after the Second World War junior high school textbooks also included a bookkeeping textbook, allowing Japanese citizens the opportunity to learn about bookkeeping as part of their general education. Nowadays, the environment is one in which the skill of bookkeeping is not acquired unless one goes out of their way to study it. As a result, we now have a situation in which students enter society without even being able to manage their own money confidently. The ability to manage your own money leads to understanding other people’s money. In other words, bookkeeping creates a framework for thinking about the real person standing on the other side of money as an information source. I propose “universal bookkeeping” as a way of creating a brighter future and obtaining richer lives.* The information contained herein is current as of December 2013.
* The contents of articles on M’s Opinion are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.

Information noted in the articles and videos, such as positions and affiliations, are current at the time of production.